UAE close to final proposals on fund rules

Dubai, June 6, 2011

The United Arab Emirates is close to issuing a final draft of proposals to regulate the country's nascent asset management industry, seen as an important step in protecting investors' interests and boosting market confidence.

The Securities and Commodities Authority (SCA) issued an initial draft for regulating investment funds earlier in the year and a final circular is expected by mid-July after consultations with asset management firms, a fund management source familiar with the discussions said.

'The SCA wants this to be a more regulated market. The first draft came out in April, the final paper will come out about mid-July,' the source, who did not wish to be identified, said.

The proposals, intended to boost transparency among funds, will also apply to distributors, with the ultimate aim of developing a market for the creation of and distribution of very liquid products.

'The fund management business in the Mena region is at a very nascent stage and improvements in regulation should be welcomed as part of the sectors' development,' said Daniel Rudd, HSBC's head of asset management for the region.

'These changes are likely to boost international confidence in the region as well as adding much-needed protection to local retail investors,' Rudd said.

The proposed regulations would also mean the SCA would be responsible for oversight of licensed entities, freeing up resources of the Central Bank -- which currently regulates funds in the UAE -- to monitor other institutions such as commercial banks.

Companies planning to set up a local investment fund will be required to be established as a joint stock company, have their permanent headquarters in the UAE and have a paid-up capital of no less than 10 million dirhams. They will also be required to invest a minimum of 10 percent of the capital for each local investment fund they set up.

Funds are also domiciled out of financial free zones like the Dubai International Financial Center (DIFC) and under the proposals, DIFC-domiciled funds would be considered as foreign funds by the regulator.

The proposal will require foreign funds to get approval of the regulator and the central bank to market the funds in the country.

The SCA is scheduled to meet with representatives from DIFC-domiciled firms on Thursday, the fund management source said. - Reuters